November 09, 2010

Source: Lenders are pondering hiring an interim president for Stars

The group of lenders who are serving as the owners of the Stars are seriously considering naming an interim president to help guide the team, according to a source close to the sale of the team.

The move could be seen as a sign that the lenders are content to run the team for the remainder of the 2010-11 season, but the source said it's more a matter of doing what's best for the Stars in the event a sale does not happen.

Former Stars president Jeff Cogen left the team in August when he was lured away by the Nashville Predators. With no contract extension and no sign of a new owner, Cogen decided he needed to be open to a new challenge with a different team. As such, Stars have been operating without a president since that time and has been run by three executive vice presidents, with input from the executive committee of the lenders, as well as the NHL.

Four people have been approved by the NHL to look at the books of the team and study a possible offer to buy the team, but Calgary oilman Bill Gallacher has dropped out of the process after spending most of the summer studying a potential sale. The three remaining potential buyers have not been able to come close to meeting the price that would satisfy the lenders, who took over the team after Hicks Sports Group defaulted on $525 million worth of loans that were used to purchase and run the Stars and the Texas Rangers.

Several people close to the sale say that open dialogue continues every day but that neither side is close to finding a price that makes everyone happy.

That means the lenders could continue to run the team for the remainder of the season in hopes that either a strong run in the playoffs or a change in the economic environment could entice buyers to raise their bids. The Stars have been running on the monies collected in the summer through ticket sales, advertising and television revenue, but those monies could run out in December. The Stars have talked to the NHL about getting an advance on future money that is normally collected by teams after the season, but the lenders could have to be prepared to start covering potential losses as soon as December.

That would be one reason to bring in a president who would report directly to the lenders' executive committee. The other would be so that the lenders could make the Stars a more attractive product by either increasing ticket sales or advertising sales or by improving performance on the ice.

The source close to the sale said the lenders definitely want to make the Stars succeed for two key reasons that help both the lenders and the fans.

1. If the team has success on the ice and a long payoff run (where revenue is at its highest on a per-game basis), that will immediately increase revenue and help make sure that the team loses as little money as possible this season (some estimates are as high as a $20 million loss if the team does not increase sales and does not make the playoffs).

2. If the team has success and people start showing up for the games or watching on television, potential buyers will see the viability of long-term profit and the value of the team could increase in a potential sale.

Forbes estimated the worth of the team in 2009 at $246 million. However, recent sales of teams in Tampa Bay and Atlanta seem to indicate that you must reduce your price greatly when trying to sell an NHL teams these days. It is difficult to actually nail down what the price of a team might be, as some estimates include just the cash that exchanges hands, while other also include assumed debt (such as future payments on paying off an arena). Some estimate had the Lightning going for $91 million. Others said $172 million. Either way, that's less than the $200 million that was the reported cost of the team a few years earlier.

The Stars' sale is probably going to be the same way, as the final price is going to be different than how much a buyer actually has to finance _ but the price is expected to be significantly less than the last valuation of the team.
That brings up another problem, as many banks are reticent to loan money for NHL teams at this time. Lenders who bankrolled Hicks Sports Group are probably going to lose money. Lenders that allowed Jerry Moyes to buy the Coyotes a few years back or Oren Koules and Len Barrie to buy the Lightning just a couple of years ago probably lost a lot of money.

So wouldn't a lender take that into consideration when trying to fund the purchase of the Stars?

The lenders who own the Stars say the team is not a ``distressed property'' like Tampa Bay, Atlanta or Phoenix (which is owned by the NHL after going through bankruptcy) but potential buyers say that the market is the market right now and they do not feel the need to pay more than the going rate. In addition, buyers believe they will have to fund losses for at least a couple of seasons, and they are figuring those losses into the price of the team.

That's how we have gotten to where we are, and that's why the lenders are seriously considering putting a person in charge of the team who will look at the immediate budget and also look at ways to increase revenue (or value) for the future. The source said they would look to hire an interim president who has the credentials to carry on in the position once a new owner is found, and said the interim president would provide a bridge between GM Joe Nieuwendyk and the lenders. The lenders would definitely consider making the Stars better this season, if it made sense on the ice and financially.

The source said they hope they can do anything and everything to ensure success on the ice, because it would help the team financially.